Leading wine and spirits distributor
Constellation Brands Inc.
) delivered adjusted earnings of 63 cents per share in the third
quarter of fiscal 2013, surging over 21% from the year-ago
quarter's earnings. Moreover, quarterly earnings exceeded the
Zacks Consensus Estimate of 55 cents.
On a reported basis, the company registered earnings of 58
cents per share compared with 52 cents in the year-ago quarter.
The year-over-year improvement in the bottom line was primarily
driven by increased top line, improved margins and lower tax
Net sales in the quarter increased 9% to $766.9 million from
the year-ago quarter, surpassing the Zacks Consensus Estimate of
$744 million. On an organic basis, the company's wine and spirits
sales grew 6% year over year. Net sales gained on the back of
higher volumes and better product mix, partially offset by
elevated promotional costs.
Cost and Margin Performance
Cost of products sold escalated 9.2% year over year to $456.1
million in the quarter; however, based on revenues, it contracted
16 basis points (bps) to 59.47%. Adjusted gross profit increased
10.8% to $314.2 million and gross margin expanded 50 bps to
Adjusted selling, general and administrative (SG&A)
expenses augmented 25.4% to $141.3 million in the quarter. Based
on sales, it increased 234 bps to 18.42% from the comparable
prior-year quarter, primarily due to increased promotional and
marketing expenses incurred to support innovation initiatives at
the company's U.S. wine and spirits business.
Constellation Brands' adjusted operating income increased
13.2% to $172.9 million from $152.8 million in the year-ago
quarter, leading to an expansion of 70 bps in operating margin to
During the quarter, the company's interest expense soared
32.6% to $61.4 million, primarily driven by the hiked average
borrowings as well as increased average interest rates. Effective
tax rate in the quarter was 27.8% versus 36.9% in the year-ago
Constellation Brands' cash and cash investments as of November
30, 2012 was $200.5 million. During the nine months of fiscal
2013, Constellation Brands generated $389.0 million of cash from
operations compared with $640.8 million in the previous-year
period. Through the same time period, the company generated a
free cash flow of $336.8 million compared with $586.7 million
reported in the prior-year period.
Fiscal 2013 Outlook
Constellation Brands raised its fiscal 2013 adjusted earnings
guidance to $2.10-$2.20 per share compared with earlier
projection of $2.00-$2.10 per share. Certain factors were
considered before providing the guidance, such as an interest
expense expectation in the range of approximately $225-$235
million, an approximate tax rate of 27% and weighted average
diluted shares outstanding of approximately 190 million.
Moreover, the company anticipates generating a free cash flow in
the range of $450-$500 million.
On a reported basis, the company expects earnings per share in
the range of $1.97-$2.07 per share compared with $2.13 in fiscal
2012. Earlier, the company was expecting earnings in the range of
$1.87-$1.97 per share.
Constellation Brands is the largest wine company in the world
with a strong portfolio of premium wine brands complemented by
spirits, imported beer and other select beverage alcohol
products. Constellation Brands competes with
) and privately held E. & J. Gallo Winery and Jackson Family
We currently have a Zacks Rank #2 on the shares of
Constellation Brands, implying a short-term Buy rating on the
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